John Tamny On Housing.

John Tamny over at Real Clear Markets recently wrote this about housing.

" 'Recession Slows Migration in U.S.' was a recent Wall Street Journal headline. Since new jobs are frequently the main reason people move, the story wasn't a big surprise. Unfortunately, the lack of migration related to a less bountiful jobs picture wasn't the full story. Indeed, the other major factor presently keeping Americans grounded is housing. As the Journal article noted, falling home prices 'have prompted many people to stay put, rather than risk losing money in a declining housing market.'

The housing angle is unfortunate, and it raises the question of why our federal minders have throughout history gone to great lengths to subsidize its health. Subsidies and taxes, for good or bad, are usually implemented to achieve an outcome presently not revealing itself due to natural market forces. But when it comes to housing, history shows any governmental efforts meant to achieve greater ownership were superfluous at best.

That is so because--as historian Niall Ferguson writes in his latest book, The Ascent of Money--when it comes to home ownership in the English-speaking world, 'no other facet of financial life has such a hold on the popular imagination.' Indeed, even though the popular board game Monopoly was created to discourage home ownership, Ferguson points out that its phenomenal success was 'in complete contradiction to its original inventor's intention,' given the American obsession with property.

As Americans learned in The Wizard of Oz, 'there's no place like home.' Even better for most homeowners in the U.S., thanks to periodic monetary mistakes (think the 1970s and this decade) that have led to a greatly debased dollar, housing has served as the ultimate middle-class hedge. Almost commodity-like in its price movements, housing has historically been a safe investment, its long-term value on an upward path no matter the economic climate.

Many have bemoaned housing's recent weakness, but compared to the decline of the S&P 500 over the past year, property has done very well. And since it's a tangible investment that its owners can actually live in, its virtues become even more attractive regardless of any preferential treatment afforded it by the federal government.

Despite housing being an asset class that has needed no help, politicians have regularly sought to subsidize it. Mortgage interest was deductible for federal tax purposes as early as 1913. FDR gave us the Home Owners' Loan Corp., the Federal Housing Administration (FHA) meant to encourage long-term loans, and then the Federal National Mortgage Association (nyse: FNMPRG - news - people ) (Fannie Mae (nyse: FNM - news - people )) was formed to create a more liquid market for loans.

In later years, the Savings & Loan (S&L) industry was propped up when the federal government allowed it to offer higher deposit rates than traditional banks. And when higher-yielding money-market accounts threatened the S&Ls with obsolescence, the government stepped in to guarantee larger S&L deposits alongside reduced regulations that essentially privatized gains in concert with the socialization of losses.

Many on the right today point to the greater empowerment of Fannie Mae and Freddie Mac under President Bill Clinton as the precursor to today's housing troubles, but a more realistic account shows that politically correct thinking with regard to housing infected both major political parties. Indeed, if we ignore how the Bush Treasury's weak-dollar policies fostered a 'flight to the real,' we certainly cannot ignore President George W. Bush's 2002 proclamation that, "We want everybody in America to own their own home."

Given Bush's view that "it is in our national interest that more people own their home," he signed the American Dream Downpayment Act in 2003, which, according to Ferguson was "a measure designed to subsidize first-time house purchases among lower income groups." So make no mistake, the rush into housing by those unable to afford

mortgage payments was very much bipartisan in nature.

What's interesting today is that despite a broad consensus that the rush into housing at least partially explains our nation's financial difficulties, there's yet another growing consensus that Washington must fix the housing market. And with housing in mind, economic thinkers on both sides of the philosophical aisle are endorsing governmental efforts to reduce mortgage rates.

What's most surprising here is how many who embrace classical, or supply-side thinking, agree with the above. For one, when we purchase housing, we're merely consuming capital that essentially goes into the ground. This flies in the face of classical theory, which argues for greater savings so that the entrepreneurs in our midst can access the very capital necessary for growth.

Second, it can't be forgotten that housing is by definition a stationary investment. And as an immobile object, housing is one of the easiest assets for governments to tax. While human capital is less easily taxed (for its effectively being mobile), a house cannot move--and tax collectors love it when they can easily see what we own.

But worst of all is housing's often illiquid qualities and their impact on worker migration. It's perhaps a cliché, but we live in a world of fast-moving capital that reaches new locales with the click of a computer mouse. As the aforementioned story from The Wall Street Journal makes plain, housing, particularly during periods of economic uncertainty, keeps the very human capital necessary for our economic revival from traveling to where it is most needed.

So, contrary to the broad economic consensus, efforts to save the property market are paradoxically inimical to its health. Owing to the basic truth that we produce in order to consume, and that consumption of shelter is a given, the best path for the government to take in order to save housing would be to de-emphasize its ownership, or at the very least make it equal in the eyes of the law with regard to other investments.

If so, investments in the ground might decline, but this will occur alongside greater investment in the productive economy. And if the productive economy of the mind flourishes, consumption of existing and future housing stock will surely take care of itself.

http://www.forbes.com/opinions/2009/01/02/housing-subsidies-migration-oped-cx_jt_0105tamny.html